Small caps that go big

Keir Reynolds, 29

Occupation: Investor relations consultant

Portfolio: Ventana Gold Corp., Rock Energy Inc., Oroco Resource Corp., Rockgate Capital Corp., Wildcat Silver Corp., Medoro Resources Ltd., Resverlogix Corp., Andover Ventures Inc., West Timmins Mining Inc.

Strategy

Vancouver-based investor relations consultant Keir Reynolds focuses on small caps that have a chance of doubling in 12 months or less. He tries to uncover smaller companies that are making the transition from a retail to an institutional story. "When institutions come in, institutions tend to follow what other institutions are buying," he says, "And that can mean price appreciation quite quickly because institutions need to get a certain position."

Where he looks

Mr. Reynolds feels that the biggest opportunities are in companies with a market capitalization of less than $100-million. He looks for companies with a product, service or project that is going to be important enough to win the critical attention of institutions. "We don't want insider information, but want to know what kind of catalysts we can expect. Are they completing a clinical trial? Starting a big drill program? Launching a new service?"

How he assesses management

"I go out and meet them and talk to them," he says. "People don't realize you can just call up a lot of these companies." His questions don't just give him facts, but help him get a feel for the management team. "If they use a lot of general or overpromotional language that sends up a bit of a red flag," he says.

His investment club

Mr. Reynolds founded an investment club in the winter of 2008. Unlike other clubs, the members don't pool their money, but invest through their individual accounts. "The biggest way to make a lot of money in small-cap stocks is through trading ideas."

Best Move

Ventana Gold Corp. only went public last November, and Mr. Reynolds bought into the stock at under $1 in early 2009. He liked the management, saying it had a track record of being successful in the sector. In addition, "they had drill holes from when the company was private that were high grade." The fact that the company was operating in Colombia had put a lot of investors off, but Mr. Reynolds saw potential in the project. Ventana last closed at $5.56

Worst

Last summer, Mr. Reynolds invested in Calgary-based Ember Resources Inc., which is involved in producing natural gas from coal, known as a coal bed methane. "There was a lot of debt they assumed through an acquisition," he says. Mr. Reynolds paid between $1.91 and $2 in June, 2008, "right before the economic world came apart, and any company that had significant debt was hurt." He sold the stock in September, 2008, for a loss of between 50 and 60 per cent.

Advice

"Be very leery of projections. They can be the death of a company. If they aren't exceeded, management is setting itself up for failure."

Special to The Globe and Mail

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